How DHL’s Big Data Boosts Performance

Patience and clean-data diligence were the keys in implementing a global activity-based costing system, a controller recalls.
Taylor ProvostJanuary 30, 2013

PHILADELPHIA — A few years ago, DHL Express was in a downward spiral of data quality. Everyone knew it was wrong, so nobody made an effort to improve it. No one even looked at it, which just made the quality worse.

“We’re in a very competitive industry,” Graeme Aitkin, vice president of business controlling at the company, told a room of financial executives at CFO’s Corporate Performance Management conference on Monday. “We have to distinguish ourselves from the competition, and one of the biggest advantages is data. We collect a lot and the customer demands a lot.”

Clearly something had to change.

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Previously, the company had used a Microsoft costing tool deployed locally in the 200 countries in which DHL Express, a subsidiary of Germany’s Deutsche Post, operates. Aitkin said the tool used employee interviews to localize cost allocations, asking couriers how they spent their time every day. In the old days, he said, when the data wasn’t available, it wasn’t possible for a company to have a unified costing and pricing system across a global company.

“We could only build cost models on what we had available,” said Aitkin. “Nothing reconciled to the financial results. We couldn’t produce a standard cost of shipment or pickup because we didn’t have the data. We couldn’t distinguish fixed and variable costs.”

Aitkin and his colleagues realized that by collecting and analyzing good-quality data from all of its transactions with the companies it serves, DHL Express could gain an edge when it came to accounting for cost and pricing. The consistency of a single, worldwide costing system that reconciled to the company’s global profit-and-loss statement would improve pricing management and enhance profitability improvement.

That’s what they told the DHL Express board of management. The only return on investment Aitkin and his team included in their business case was for operational cost reduc­tions in switching from the local legacy systems to the global one. The true return, he told the audience, was the quality data the company now uses to drive strategic pricing decisions.

“It was a huge investment, and we didn’t overcommit and didn’t overpromise,” he cautioned. “Our business case only promised savings we could prove.” Aitkin was also fortunate enough, he said, to have the support of a CFO who believed in the importance of data, and a CEO who also knew the value of data.

The costing system, known as INSIGHT, produces for DHL Express the cost and profitability for every shipment in its network. As a result, conversations have shifted from whether a customer’s profitability data is accurate to how it is going to act on the data. “No one debates it because they know we can prove how the cost has been allocated,” Aitkin said. “Now we look at customer compliance. If a customer gets a price on the promise of giving us $1 million a year, but only giving us $59,000, we now have the data to back up our discussion with that customer.”

Aitkin noted that DHL Express didn’t start completely from scratch in creating INSIGHT. It built the costing and pricing platform on top of an existing data-warehouse platform that itself built on the notion that every package is scanned at pickup, on arrival and departure from a facility, and every process in between, and that data is stored for reporting and analysis. “What we didn’t do was reinvent the data,” he said. “We used data that already existed and then linked that to operational databases, billing systems to get revenue and customer information, and local [general ledgers].”

Using INSIGHT, DHL Express can manage cost in every country in the same way using consistent data. “It’s similar to benchmarking,” Aitkin explained. “We can benchmark Japan to the U.K. to France to Brazil and focus on specific problems.”

An issue of particular importance to the company is managing the fleet of 250 airplanes that are at the core of its business. “Ultimately, we’re an airline, and our planes are going to fly whether there’s one ship­ment on board or a full load,” said Aitkin. “To fill the planes we have to manage our margins.” DHL Express can now link the profit of what’s being shipped on a particular flight with the expense of shipping it, and then determine what size plane would be best for the job.

Aitkin acknowledged that change management was a major hurdle in implementing the system, which is still being rolled out but is currently in use among the business’s top 20 customers. To boost morale, he said, it was important to “post some quick wins and small short initiatives to prove success to board early on, and let them know you’ve made a wise investment.”

He also encouraged other businesses thinking of adopting a similar solution not to rush under any circumstances. “This took way longer than we expected because we wanted to get it right,” he said. “Only then do you see data problems. We kept it very protected until the data was accurate, and if we hadn’t done that from the start, the system would be dead by now.”

“It was a huge success to the surprise of most people on the board,” Aitkin concluded. “We proved that globalizing a fragmented system was possible. And we proved it was cost-effective.”

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